WASHINGTON (Reuters) – With Democratic President Joe Biden and Republican House Speaker Kevin McCarthy facing off over raising the $31.4 trillion U.S. debt ceiling, some observers have suggested possible solutions to avert disaster if the two sides fail to reach a deal. an agreement.
Here are some of their suggestions:
Trillion dollar coin
Some commentators have suggested that the US Treasury could mint high-value platinum coins and deposit them in the Federal Reserve in exchange for cash, giving the government more money to spend.
Critics say this could disrupt financial markets, as investors may hesitate to buy US bonds that are not backed by congressional measures, or question the soundness of a political system that might resort to such unorthodox methods.
Others say it could increase inflation or undermine the Fed’s independence. Furthermore, the law that authorized platinum coins conceived them as commemorative items rather than currency.
Government officials, including Treasury Secretary Janet Yellen, have repeatedly dismissed the idea as a gimmick.
Fourteenth Amendment
Section IV of the Fourteenth Amendment to the United States Constitution, adopted after the Civil War of 1861-1865, states, “The validity of the public debt of the United States… shall not be questioned.” Historians say this was intended to ensure that the federal government did not repudiate its debts, as some former Confederate states did.
Some experts have suggested that Biden could invoke this amendment to raise the debt ceiling himself if Congress takes no action. This is almost certain to lead to prolonged legal wrangling, which could rattle the financial markets for the reasons explained above.
Prioritize payments
Some Republican lawmakers said the government could avert disaster after breaching the debt limit by choosing to make some payments and delay others.
Under this scenario, the Treasury Department would use the available cash to pay off bonds, benefits for retirees, veterans, and military personnel. Other payments, such as salaries for civilian workers, will be deferred.
Yellen told Congress in March that would be a “default by another name” that would lead to a sharp rise in interest rates.
BYPASS Republican Leadership
Democrats and ordinary Republican allies in the House could bypass McCarthy and force a vote on a “clean” increase in the debt ceiling, without any spending cuts or other conditions.
And because the Republicans have a slim 222-213 majority in the House of Representatives, only five of them would have to break with their party and side with the Democrats to get the 218 votes needed to pass the legislation.
This group could try to hijack an existing vote on another bill and replace it with their preferred solution.
Alternatively, they could collect 218 signatures for a “release petition” to get past legislative hurdles.
This takes time. Supporters must wait at least 30 days after submitting their bill before filing their petition, and then must wait another seven legislative days after that.
If McCarthy or the gatekeepers on the House Rules Committee still oppose the measure, supporters can still bring it to a vote — but only on the second or fourth Monday of the month when the chamber is in session.
That leaves only two other possible dates for action in the first half of this year: May 22nd and June 12th.
Discharge petitions have only been successful twice this century, in 2002 and 2015.
high interest bonds
Some have suggested that the Treasury could sell bonds at higher interest rates than market conditions dictate. Under this scenario, the Treasury could earn $38 billion by selling $35 billion worth of bonds at 5%, instead of 3.5%, and using the proceeds to draw down more of its debt, giving it more room to operate under its current debt limit.
Analysts say this would leave the Treasury Department on the hook for higher interest payments and destabilize the Treasury bond market, which serves as the bedrock of the global financial system.
Get rid of it
Congress could vote to eliminate the debt ceiling entirely, eliminating the need to vote on the issue periodically, but also undermining Congress’s authority in fiscal matters.
Yellen endorsed the idea, but Biden dismissed it as “irresponsible” and prominent liberal lawmakers such as Senator Bernie Sanders ruled it out. Attempts to abolish the debt ceiling have not gained traction in Congress in recent years.
Sources: Moody’s Analytics; Congressional Research Service
(Reporting by Andy Sullivan; Editing by Scott Malone, Alistair Bell and Jonathan Otis)
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